Too much is too bad: The effect of media coverage on the price volatility of cryptocurrencies

Abstract

This study investigates the influence of information excess due to the increased media coverage on the price volatility of cryptocurrencies. News coverages may serve as either signals or noise in cryptocurrency markets characterized by an insufficient understanding of the fundamental value of assets and a high level of strategic complementarity. In a game-theoretic model, we show that the number of news coverages, either related or unrelated to the fundamentals, increases the price volatility of assets in a nascent financial market. We tested our hypotheses using a unique dataset of 358,118 observations of 500 cryptocurrencies and 36,572 media coverages between 2014 and 2017, the early period of cryptocurrency with the rise of public attention. The results show that cryptocurrency price volatility increases in the number of unrelated news for both major and minor coins. The volatility even increases with the number of related news in minor coins. These results have important implications for investors and entrepreneurs about the effect of misinformation in nascent markets.